The country on March 4 holds its first national vote since
a disputed ballot in 2007 triggered clashes that killed more
than 1,100 people. The unrest caused growth in East Africa’s
biggest economy to slump by two-thirds to 1.5 percent in 2008 as
farm output collapsed, the shilling declined 8.5 percent against
the dollar and the benchmark stock index dropped 11 percent.

Since campaigning began last year there have been sporadic
ethnic and political clashes and controversy over a leading
presidential candidate’s impending trial for crimes against
humanity at the Hague-based International Criminal Court. That’s
set against expectations the economy may grow as much as 6
percent this year from about 5 percent in 2012, propelled by an
expanding middle class and growth in banking and technology.

“The reward is worth the risk,” said Mobius, 76, who
oversees more than $50 billion as executive chairman of
Templeton. “The election turmoil has not yet impacted the
economy and is unlikely to do so unless widespread violence
breaks out. Investors seeking growth and profitability are
attracted to Kenya since the country and companies in the
country are growing at a good pace.”

Kenyan mobile-phone operator Safaricom Ltd. and East
African Breweries Ltd., the nation’s biggest companies by market
value, have more than doubled revenue over the past five years.

Front Runners

The presidential front-runners, Prime Minister Raila
Odinga, 68, and Deputy Premier Uhuru Kenyatta, 51, have 44.4
percent and 44.8 percent support respectively, according to a
Feb. 22 opinion poll published by Ipsos-Synovate Kenya, the
Nairobi-based research company. Neither may get the 50 percent-plus-one majority needed for an outright win, the poll showed.

A runoff election would be held in April.

Accusations of vote-rigging by opposition supporters
aligned with Odinga sparked the 2007-08 clashes, leading to
retaliation by followers of President Mwai Kibaki. Prosecutors
at the International Criminal Court accuses Kenyatta and his
running mate William Ruto of directing ethnic mobs to murder and
drive people from their homes. They both deny the charges.

“If they did not run, it would be positive,” Mobius said
in an e-mailed response to questions. “However, we must
recognize the democratic process and if the High Court and ICC
do not reach decisions to ban them from running, then the
electoral results must be accepted.”

The High Court cleared the two men to run on Feb. 15,
saying the Supreme Court must rule on their eligibility.

Foreign Investment

The U.K. and European Union have said they make only
essential contact with ICC indictees. U.S. Assistant Secretary
of State for African Affairs Johnnie Carson, in a conference
call with reporters on Feb. 7, told Kenyan voters that “choices
have consequences.”

Foreign investors have helped Kenya’s NSE All Share index
gain 12 percent this year, adding to a 39 percent rise last year
that ranked the guage as sub-Saharan Africa’s best performer.
Investment from abroad represented 49 percent of all trading in
Kenyan equities last year, compared with 10 percent in 2007,
according to data from the Nairobi Securities Exchange.

The International Monetary Fund’s 6 percent growth forecast
for Kenya outpaces the average estimates for other emerging and
developing markets at 5.5 percent and compares with expectations
the global economy will grow 3.5 percent in 2013.

‘Structural Growth’

“There is strong structural growth in Kenya,” said
Alykhan Nathoo, a partner with London-based Helios Investment
Partners, an Africa-focused private investment firm. “This is
underpinned by a growing consumer class, strong development in
infrastructure and reforms in the judiciary. Any impact of the
election would, in our view, be short-term in nature and be far
outweighed by these positive structural factors.”

Helios has $1.7 billion under management, according to its
website. The firm’s portfolio includes stakes in Equity Bank
Ltd., Kenya’s second-largest lender by market value, and Vivo
Energy Kenya Ltd., a closely held motor-fuel distributor.

Reforms under a constitution enacted in 2010 have
strengthened the independence of the judiciary and built
safeguards into the electoral process to make it less vulnerable
to tampering. The candidates have said they are prepared to
concede defeat and settle any disputes in court.

“The new constitution and judiciary reforms means that
there are sufficient mechanisms in place to deal with the
issues,” said Humphrey Gathungu, a portfolio manager at Stanlib
Asset Management Ltd., which has as much as 15 percent of its
$250 million African equity funds invested in Kenya.

Banking Attractive

Kenya’s economic growth makes investment in its banking
stocks “particularly” attractive, said Mobius, whose $16
million Africa Fund has Kenya Commercial Bank Ltd., the largest
bank by asset value, as its fifth-largest holding. The stock has
surged 29 percent this year, making it the best-performing bank
over that period, according to data compiled by Bloomberg.
Opportunities are also emerging in retail, telecommunications
and agriculture, he said.

The country has become a leader in mobile banking following
Safaricom’s introduction of M-Pesa in 2007. The mobile-phone
payment service carries out more transactions monthly within
Kenya than are processed globally by Western Union Co., the
world’s biggest money-transfer business, according to the IMF.

Kenya is also poised to become an oil producer after Tullow
Oil Plc and Africa Oil Corp. announced the country’s first
discovery of crude in March 2012.

The Kenyan shilling gained for a second day, advancing 0.2
percent to 86.07 per dollar by the close in Nairobi, its
strongest this year, according to data compiled by Bloomberg.

“It’s likely to be a fairly rocky and volatile period
through the elections,” said Malcolm Gray, a fund manager at
Cape-Town based Investec Asset Management Ltd., which oversees
$50 million of Kenyan equities. “The long-term opportunities in
Kenya remain attractive.”